By Kate Billman-Golemme of Fitch Law Partners LLP posted in Business Litigation on Thursday, February 25, 2016.

In a ruling that brings certainty to employers and employees, this month the Massachusetts Supreme Judicial Court issued two opinions concerning workers' compensation benefits, specifically, the scope of an insurer's lien. Generally, under G.L. c. 152, the workers' compensation statute, most private employers in Massachusetts are mandated to purchase workers' compensation insurance or qualify as self-insured. The law enables employees to receive benefits after on-the-job injuries, but prohibits them from suing their employers. Under Chapter 152, injured employees can recover payment for damages such as medical expenses, rehabilitation costs, and lost wages. However, they cannot recover compensation for pain and suffering.

While employers participating in the workers' compensation program are essentially granted immunity from suit by injured employees, the statue does not grant third parties similar protection. The result is that a worker may recover under the workers' compensation program from his or her employer's insurer and still sue third parties for damages. The scope of potential recovery from such third party suits is not governed by the workers' compensation statute, and employees may recover damages for pain and suffering. However, to avoid a potential "double recovery," G.L. c. 152, § 15 entitles an employer's insurer to a lien on any third party recovery in the amount paid by the insurer to the employee. An employee is entitled to keep any amount of recovery that exceeds what the insurer paid in workers' compensation benefits.

In DiCarlo v. Suffolk Construction Co., Inc. and Martin v. Angelini Plastering, Inc., two opinions issued together on February 12, 2016, the Massachusetts Supreme Judicial Court ruled on the scope of the insurer's lien on such third party awards. The Court determined that, under G.L. c. 152, § 15, an insurer's lien does not extend to damages that an employee recovers from a third party for pain and suffering. The Court analyzed the statute's use of the word "injury" and concluded that an insurer's lien could only attach to damages paid out to the employee as workers' compensation benefits.

The goal of the statutory lien is to prevent double recovery and allow for reimbursement of an insurer's payment after third party recovery. However, the Court reasoned that "reimbursement" is not available where damages were paid by a third party for pain and suffering because an insurer could not be reimbursed for an expense that it did not incur. The Court's focus was not the employees' dollar amount of recovery in a third party suit, but rather, "the nature of the injury asserted."

These two rulings, which affirmed the Massachusetts Appeals Court's rulings, have significant implications for the structure of tort settlements under G.L. c. 152, § 15. Parties to such settlement agreements will need to keep the Court's ruling in mind when allocating payment between claims.